Never mind corporate governance, what counts is management. That is roughly the view of Robert Waugh, head of UK equities at Edinburgh-based Scottish Widows Investment Partnership (Swip).

He compares the performance of supermarket groups Wm Morrison and J Sainsbury over the last 20 years. Morrisons, which ignores many corporate governance structures on non-executive directors, has risen twenty-eight-fold; Sainsbury's, which has ticked virtually every box going, has managed only to double in value.

'That is the difference management can make over a 20-year period. What is important is to get the right management doing the right job. So we avoid taking too mechanistic an approach to corporate governance.'

With £77 billion of assets under management, a third of that invested in the shares of UK companies, Swip is one of our biggest retail fund managers, accounting for around 2 per cent of the British stock market.

The five years since it was acquired by Lloyds TSB as part of a takeover of the life assurer Scottish Widows have not always been easy. First, there was the challenge of integrating with Hill Samuel, LloydsTSB's existing fund manager. Then there was the uncertainty about its future as the stock market slump, endowment and pension crises conspired to make analysts speculate that the bank would ditch it at the first opportunity. Finally, there was a wave of departures of some of its oldest and most-admired executives. These included Mike Ross, chief executive of its Scottish Widows parent, who stepped down last autumn as part of a strategic review by LloydsTSB, and Sandy Nairn, its former chief investment officer, who took a number of key staff to set up an investment boutique in Edinburgh.

The uncertainty has had an impact on performance: Scottish Widows funds regularly feature among the funds identified by financial advisers Best as having underperformed over a three-year period. And pension funds and other institutions have been wary of giving it money during a period of such rapid staff changes.

Swip has been working hard to rebuild its team and its morale. LloydsTSB's chief executive, Eric Daniel, gave categoric assurances that Scottish Widows was not up for sale when the bank announced its results earlier this month. A new chief executive, Chris Phillips, was appointed at the end of last year. Nairn was replaced with two internal appointments. Waugh and some of his colleagues were poached from Edinburgh Fund Managers to beef up the equities team, and defections seem to have stopped. And Waugh points out that 80 per cent of its Oeic funds have outper formed their benchmarks over the last 12 months.

Its financial performance still has some way to go, however: profits last year were just £2 million, a paltry sum given the amount of funds under management.

Swip has also been 'evolving' its corporate governance policy, as Waugh puts it, with new guidelines and a more high-profile approach. It has taken the lead in working with Canary Wharf as it grapples with takeover bids from investors led by Morgan Stanley and Canadian group Brascan. 'We were involved in working with the non-executive directors of Canary Wharf to ensure that it was not sold off too cheaply - and we have seen our stake increase in value by £12m as a result.' Swip was also instrumental in defeating a bid for property group Derwent Valley that it thought undervalued the group.

It has recently been talking to companies whose share option schemes allow them re-testing of options when targets are not met in any particular year. 'We have put pressure on the management either directly or through the Association of British Insurers.' That has helped persuade many companies to drop the options.

'We see corporate governance as a question of engagement - but you need to know when to stop,' said Waugh. 'It is a company's job to appoint managers and to set remuneration. It is our job to see that their remuneration policy ties in with the interests of our clients.'

The firm has one person engaged full-time on corporate governance: Anne Baker, a former fund manager, who shares a desk with fund managers and discusses any issues she has with them.

Like most other large fund managers, its policy is to vote on all resolutions wherever possible. But unlike rivals such as Morley, Insight or the Co-operative Insurance Service, Swip does not publish voting records. These are available to clients and, says Waugh, 'we take the view that it is up to our clients if they want to disclose that information'.

Waugh thinks tomorrow's dinner between members of the Confederation of British Industry and the Investment Management Association - which Phillips is attending - is a good opportunity for shareholders and directors to discuss how they can work together.

He adds that, although there was a need to move away from the situation of a decade ago, when the power of boards was unchecked and few shareholders used their rights as owners, the pendulum may have swung a bit too far in shareholders' direction.

Historically, companies were family-run and controlled; now, 'they are very large institutions, and managers are hired hands. That encourages short-term horizons in both managers and shareholders.

'One of the things I find interesting is that the two best-performing companies over the last 20 years are Wm Morrison and Daily Mail and General Trust. Neither have the governance ticks but both have had superb management, acting as agents for the owners and passing the business down the generations.'

Before he gets too carried away with enthusiasm for the family business model, however, he points out that Sainsbury - managed by the family until very recently and still 35 per cent owned by them - is propping up the bottom of the table.

Instead, he attributes the superior performance of Morrisons and DMGT to the fact that the family ownership helps the managers avoid short-termism. 'We need a tenure among our corporate managers which allows them to take a long-term view.'

That, he says, means 'not banging them on the head with minor aspects of corporate governance'.